Daily Insight

We witnessed a significant day in terms of economic data released yesterday and Sterling came under pressure against the majors, dropping 0.3% against the Euro following a disappointing UK housing market report and a drop in UK mortgage approvals. The Nationwide Index showed that prices barely grew last month, rising just 0.2% following a modest gain of 0.1% in April, which means that the annual growth rate is 4.7% at the end of May against 5.3% in the first three months of the year. Coupled with poor hosing data, UK mortgage approvals fell to a seven month low for the month of April as concerns for rising unemployment and higher borrowing costs discouraged first-time buyers. However, there was some positive news for Sterling as UK Retail Sales accelerated faster than expected in May, according to the CBI's Distributive Trades Survey, which also showed the highest unemployment in it's 23-year history for the second quarter in row.

There was some positive data released in the Euro-zone yesterday as the EU index of economic sentiment in consumers and companies showed that confidence in the European economy rose to the highest level in over 5-years led by a sharp increase in German retail sales and lower unemployment, which provided yet more justification for higher interest rates. The ECB convene next week on June 8th and it is widely anticipated that they will raise borrowing costs as the economy accelerates into the second quarter and inflation continues to rise. Consumer prices increased this month by the most since October last year, prompting speculation that the central bank will lift interest rates by as much as half a point this month, the first time since June 2000. There is some significant data released this morning with PMI Manufacturing expected to show a partial decline in May following near-record oil prices and the sharp increase in the value of the Euro. Elsewhere, unemployment data for the month of April is expected to remain unchanged at 8.1% in the figures released this morning.

The most significant market news came last night when the Federal Reserve released the minutes of it's May policy meeting and investors are now pricing in a probable rise in U.S interest rates later this month as the Fed attempts to stem the threat of rising inflation by taking their benchmark rate to 5.25%. It was widely anticipated that the Fed would pause at 5% interest rates this month but Ben Bernanke did indicate that a further rise in rates would be likely providing the economic indicators suggest that the economy was accelerating faster than predicted. As a result, the Dollar has rallied against Sterling and it was boosted further when the Chicago's purchasing managers' index posted an unexpected increase to 61.5 in May due primarily to a pick up in new orders and a rise in employment despite forecasters predicting a drop towards 57.2 from April.

Data Released 1st June

UK 09:30 CIPS Manufacturing Survey (May)

EU 10:00 Unemployment Rate (April)
EU 10:00 Revised GDP (Q1)

U.S 13:30 Initial Jobless Claims (w/e 27th May)
U.S 13:30 Productivity/Unit Labour Costs
U.S 15:00 ISM Manufacturing (May)
U.S 15:00 Construction Spending (April)
U.S 15:00 Pending Home Sales (April)
U.S 21:00 Domestic Auto Sales (May)

written by Adam Solomon